XML 27 R13.htm IDEA: XBRL DOCUMENT v3.21.1
Note 6 - Stock-based Compensation
 12 Months Ended
Jan. 31, 2021
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]

6. STOCK-BASED COMPENSATION

 

Stock Plans

 

On June 14, 2016, the stockholders approved the QAD Inc. 2016 Stock Incentive Program (2016 Program). The 2016 Program allows for equity awards in the form of incentive stock options, non-statutory stock options, restricted shares, rights to purchase stock, stock appreciation rights (SARs) and other stock rights. The stockholders authorized a maximum of 4,000,000 shares to be issued under the 2016 Program. Prior to July 1, 2016, stock awards were issued under the QAD Inc. 2006 Stock Incentive Program. As of January 31, 2021, 2,418,000 Class A Common Shares were available for issuance.

 

The Company issues restricted stock units (RSUs) to employees under the 2016 Program, which are released 25% after each year of service for four years and are contingent upon employment with the Company on the release date.

 

In fiscal 2020, the Company began issuing performance stock units (PSUs) to certain executive employees under the 2016 Program. PSUs issued in the fiscal year ending 2021 are released 1/2 after each year of service for two years and are contingent upon employment with the Company and achievement of pre-determined performance objectives. PSUs issued in the fiscal year ending 2020 are released 1/3 after each year of service for three years and are contingent upon employment with the Company and achievement of pre-determined performance objectives. To determine the anticipated achievement of the performance objectives, management must make assumptions regarding the likelihood of the Company meeting those targets. The number of PSUs that vest will be predicated on the Company achieving performance objectives during the measurement period subsequent to the date of grant. Depending on the financial performance levels achieved, a percentage of the PSUs (0% to 200% of the target award) will vest to the grantees of those stock units. There is no guarantee that the Company’s outstanding PSUs will vest in whole or in part.

 

In prior years, the Company has issued equity awards in the form of stock-settled SARs to the President of the Company. A SAR is a contractual right to receive value tied to the post-grant appreciation of the underlying stock. Although the Company has the ability to grant stock-settled or cash-settled SARs, the Company has only granted stock-settled SARs. Upon vesting, a holder of a stock-settled SAR receives shares in the Company’s common stock equal to the intrinsic value of the SAR at time of exercise. Under the 2016 Program and 2006 Program, SARs have been granted for a term of eight years. They vest 25% after each year of service for four years and are contingent upon employment with the Company on the vesting date. Economically, a stock-settled SAR provides the same compensation value as a stock option, but the employee is not required to pay an exercise price upon exercise of the SAR. Stock compensation expense, as required under ASC 718, is the same for stock-settled SARs and stock options.

 

Equity awards are also issued to non-employee Board members that are newly-appointed or reelected at the Annual Meeting of Stockholders.  They are granted Class A shares as stock payments that are fully vested on the date of grant.  Equity awards to non-employee Board members are limited to $250,000 per year, as determined for the Company’s financial accounting purposes as of the date of grant. 

 

Under the 2016 Program, officers, directors, employees, consultants and other independent contractors or agents of the Company or subsidiaries of the Company who are responsible for or contribute to the management, growth or profitability of its business are eligible for selection by the program administrators to participate. However, incentive stock options granted under the 2016 Program may only be granted to a person who is an employee of the Company or one of its subsidiaries.

 

Stock-Based Compensation

 

The following table sets forth reported stock-based compensation expense included in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal years ended January 31, 2021, 2020 and 2019:

 

  

Years Ended January 31,

 
  

2021

  

2020

  

2019

 
  

(in thousands)

 

Stock-based compensation expense:

            

Cost of subscription

 $544  $315  $252 

Cost of maintenance

  479   540   497 

Cost of professional services

  1,652   1,456   1,219 

Sales and marketing

  2,913   2,057   2,111 

Research and development

  2,241   1,863   1,620 

General and administrative

  6,363   5,123   4,423 

Total stock-based compensation expense

 $14,192  $11,354  $10,122 

 

RSU Information

 

The following table summarizes the activity for RSUs for the fiscal years ended January 31, 2021, 2020 and 2019:

 

  

RSUs

(in thousands)

  

Weighted
Average
Grant Date
Fair Value

 

Restricted stock at January 31, 2018

  653  $25.10 

Granted

  300   51.70 

Released (1)

  (263

)

  25.80 

Forfeited

  (27

)

  30.63 

Restricted stock at January 31, 2019

  663  $36.64 

Granted

  281   40.43 

Released (1)

  (267

)

  32.71 

Forfeited

  (50

)

  38.51 

Restricted stock at January 31, 2020

  627  $39.86 

Granted

  350   40.50 

Released (1)

  (258

)

  35.99 

Forfeited

  (21

)

  41.67 

Restricted stock at January 31, 2021

  698  $41.56 

 

 

 

(1)

The number of RSUs released includes shares withheld on behalf of employees to satisfy minimum statutory tax withholding requirements. During the fiscal years ended January 31, 2021, 2020 and 2019, the Company withheld 80,000 shares, 82,000 shares and 81,000 shares, respectively, for payment of these taxes. The value of the withheld shares for the fiscal years ended January 31, 2021, 2020 and 2019 were $3.4 million, $3.5 million and $4.3 million, respectively.

 

Total unrecognized compensation cost related to RSUs was approximately $22.4 million as of January 31, 2021. This cost is expected to be recognized over a period of approximately 2.5 years.

 

PSU Information

 

The estimated fair value of PSUs was calculated based on the closing price of the Company’s common stock on the date of grant, reduced by the present value of dividends foregone during the vesting period. The vesting is subject to attainment of specified performance criteria. Each fiscal quarter, QAD estimates the probability of the achievement of the performance goal and recognizes any related stock-based compensation expense using the graded-vesting method. The amount of stock-based compensation expense recognized in any one period can vary based on the attainment or expected attainment of the performance goal. If the performance goal is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

 

Stock-based compensation expense related to performance-based restricted stock grants for fiscal year 2021 was $2.2 million.

 

The following table summarizes the activity for PSUs for the fiscal years ended January 31, 2021 and 2020:

 

  

PSUs

(in thousands)

  

Weighted
Average
Grant Date
Fair Value

 

Performance stock units at January 31, 2019

  —  $— 

Granted

  93   39.82 

Released

  —   — 

Forfeited

  (3

)

  39.82 

Performance stock units at January 31, 2020

  90  $39.82 

Granted

  93   40.54 

Released (1)

  (21

)

  39.82 

Forfeited

  (9

)

  39.82 

Performance stock units at January 31, 2021

  153  $40.26 

 

(1)

The number of PSUs released includes shares withheld on behalf of employees to satisfy minimum statutory tax withholding requirements. During the fiscal year ended January 31, 2021, the Company withheld 8,000 shares for payment of these taxes. The value of the withheld shares for the fiscal year ended January 31, 2021 was $0.3 million.

 

Total unrecognized compensation cost related to PSUs was approximately $2.4 million as of January 31, 2021. This cost is expected to be recognized over a period of approximately 0.9 years.

 

SAR Information

 

The weighted average assumptions used to value SARs are shown in the following table.

 

  

Year Ended January 31, 2019

 

Expected life in years

 5.50  

Risk free interest rate

 2.80%

 

Volatility

 31%

 

Dividend rate

 0.54%

 

 

The following table summarizes the activity for outstanding SARs for the fiscal years ended January 31, 2021, 2020 and 2019:

 

  


SARs
(in thousands)

  

Weighted
Average
Exercise
Price per
Share

  

Weighted
Average
Remaining
Contractual
Term
(years)

  

Aggregate
Intrinsic
Value
(in thousands)

 

Outstanding at January 31, 2018

  3,024  $17.78         

Granted

  380   53.50         

Exercised

  (390

)

  9.43         

Expired

  (5

)

  9.17         

Forfeited

  (476

)

  37.14         

Outstanding at January 31, 2019

  2,533  $20.81         

Granted

  —   —         

Exercised

  (1,184

)

  16.19         

Expired

  —   —         

Forfeited

  —   —         

Outstanding at January 31, 2020

  1,349  $24.86         

Granted

  —   —         

Exercised

  (205

)

  12.91         

Expired

  —   —         

Forfeited

  —   —         

Outstanding at January 31, 2021

  1,144  $27.01   2.9  $40,971 

Vested and exercisable at January 31, 2021

  1,002  $24.28   2.5  $38,324 

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock based on the last trading day as of January 31, 2021 and the exercise price for in-the-money SARs) that would have been received by the holders if all SARs had been exercised on January 31, 2021. The total intrinsic value of SARs exercised in the years ended January 31, 2021, 2020 and 2019 was $6.1 million, $26.5 million and $12.4 million, respectively. The weighted average grant date fair value per share of SARs granted in the year ended January 31, 2019 was $16.99. No SARs were granted in fiscal 2021 and 2020.

 

The number of SARs exercised includes shares withheld on behalf of employees to satisfy minimum statutory tax withholding requirements. During the fiscal years ended January 31, 2021, 2020 and 2019, the Company withheld 57,000, 56,000 and 104,000 shares for payment of these taxes. The value of the withheld shares for the fiscal years ended January 31, 2021, 2019 and 2018 were $2.5 million, $2.7 million and $4.4 million, respectively.

 

At January 31, 2021, there was approximately $1.3 million of total unrecognized compensation cost related to unvested SARs. This cost is expected to be recognized over a weighted average period of approximately 1.0 years.